Focus on State and Local Taxation: Alabama Enacts Factor Presence Nexus Standard

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Governor Bentley signed legislation establishing a factor presence nexus standard for business activity, effective for tax years beginning after December 31, 2014, for purposes of business privilege taxes, income taxes, and financial institution excise taxes.

August 26, 2015

Governor Bentley signed legislation establishing a factor presence nexus standard for business activity, effective for tax years beginning after December 31, 2014, for purposes of business privilege taxes, income taxes, and financial institution excise taxes.

Taxpayers with substantial nexus are subject to business privilege taxes, income taxes, and financial institution excise taxes. Substantial nexus will now include those that have a factor presence in Alabama. The factor presence is established if any of the following thresholds are exceeded during the tax period: (1) $50,000 of property, (2) $50,000 of payroll, (3) $500,000 of sales, or (4) 25% of total property, total payroll, or total sales.

Entities organized or commercially domiciled in Alabama will still have substantial nexus with Alabama, and taxpayers subject to special apportionment methods will continue to follow the methods or regulations associated with that special apportionment method.

This legislation makes Alabama one of many states to adopt nexus presence standards. If changes to nexus definitions raise uncertainties or concerns, the State and Local Tax (SALT) professionals at RubinBrown can assist you in understanding the impact that these changes may have on your business.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.